Public sector commitments failing to come through

The construction industry has experienced further decline across all sectors during the second quarter of 2009 with building contractors, product manufacturers and specialist contractors all reporting further falls in activity.

The results for Q2 follow the sharpest annual contraction on record experienced in Q1 and although the decline has slowed slightly, it is not seen as a precursor to growth in the near term.

According to the latest construction trade survey from the Construction Products Association, subdued economic activity, tight credit conditions and increasing unemployment provide an extremely challenging environment for construction and product manufacturing.

Recent data from the Office for National Statistics have shown that there has been another fall in economic activity in Q2 in the UK of 0.8% and this is reflected in construction, where declining current demand, orders, employment, profits and prices are presenting severe challenges to the industry.

Key survey findings are:

  • 66% of building contractors reported that output in the commercial sector fell in the second quarter of 2009 and 55% reported that output fell in the private new housing and industrial sectors
  • 26% of building contractors reported new housing output had fallen over the past year despite £2.7 billion allocated by government to stimulate the housing market
  • 57% of civils contractors reported a fall in workloads during 2009 Q2 compared to 47% in the previous quarter
  • 66% of building contractors reported that tender prices fell in the second quarter of 2009 and 63% reported that profit margins fell.

Noble Francis, economics director at the Construction Products Association said: “The sharp fall in output within private sector construction has been exacerbated by falls in output from the public sector. This is extremely worrying given the large number of government announcements and fiscal stimuli there has been recently.”

Central government stated it would be bringing forward £3 billion from 2010/11 to stimulate work in construction and the budget in April 2009 provided further impetus for education by assisting the Building Colleges for the Future programme, in addition to £600 million for housing.

“Any benefit from these proposals has yet to find its way to significant additional work for the industry. As a consequence it is critical the government ensures these recent announcements are translated into construction activity on the ground as soon as possible,” said Francis.

Stephen Ratcliffe, director UK Contractors Group, said: “The Q2 survey paints a gloomy picture. Especially concerning is the fall in public sector construction, which provides clear evidence that the government stimuli announced in the budget and pre-budget reports have so far failed to have an impact on the market. Whilst companies are reporting increased enquiries this may not lead to increased business. We have seen a significant increase in tender lists in the public sector over recent months.”